The Numbers
Credit scores vary from 400 on the low end to a top peak of 850. An individual who has a reasonable amount of debt and who makes all debt payments on time, who has had not collections or suits, and who has never filed for a bankruptcy, can expect a score between 750 and 850. Scores fall below 750 for a variety of reasons, and the following are five financial tips to
improve your credit score. To qualify for credit at a reasonable interest rate, a consumer ought to maintain a credit score above 680.
Trade-Lines
A trade-line is an individual item on a credit report. Each credit card, each revolving loan, any mortgage, etc. is a trade-line. For a good credit score, an individual needs to have a minimum of three trade-lines which show perfect payment history for one full year.
Watch Those High Balance Limits
One thing that will cause a drop in
credit score if a balance of more than one-half of the high limit on “bad debt,” that is credit card and personal loans for which there is no collateral. Conversely, a credit score will pop nicely when a balance owed is below one-half of the original amount or the high credit balance. It would therefore make sense to put as much money as possible on each of the “bad” debts, in order to get the balance below one-half. A credit score can increase from 20-40 points each time this is done.
Pop Your Score With a Secured Card
If you have had credit problems, especially with late or missed payments, your score may well be in the 400-550 range. To obtain relatively quick jumps in your score, go to a major bank and request a secured credit card. This card requires a deposit in advance. You then are able to charge amounts up to the amount deposited on the card. The card is reported as a trade line on your credit report, and it shows the balance paid in full each month. This will pop your score as much as 40 points each month.
Consider a New Unsecured Card
After you have used a secured card for a period of time, consider applying for an unsecured card. If credit has been a problem, there may be an annual fee for this card and the balance limit may be quite small. Take the card and pay the annual fee. For the next 3-4 months, charge small amounts on this card and pay the entire balance off when the bill arrive. In this way, another trade-line will be placed on your report showing payment of the entire balance each month. Again, this can increase a score by as much as 40-6- points over a 4-6 month period.
Analyze Your Credit Report for Errors and Duplications
Get a copy of your credit report and go through it very carefully. If there is any debt on it that is not yours, you need to begin the process of getting that debt off of your report. This often occurs when parent and child share the same name, or, more recently identity theft. You must contact each of the three major credit bureaus and follow the process they outline for you. As well, sometimes the same debt appears more than once on a report. If you failed to make payments on a credit card, for example, that will be listed in the “Derogatory” section. If the credit card company has turned this debt over to a collection agency, then it can appear as an additional derogatory item. If the collection agency eventually turned this debt over to the courts, and a judgment was rendered, the debt may appear a third time under “Public Records.” Thus, the same debt is reported three times and has affected the credit score three times. Again, you need to contact the three bureaus and provide proof that all three of these items relate to the same debt, in order to get the reporting reduced to one. The credit score will rise as a result.
A Final Word
Before you pay fees to a credit repair professional, it would be wise to see what you can do yourself to raise your credit score. Using one or more of the above strategies may be all you need to bring your score to solid level.